KRUGMAN to GOP "I guess it’s a matter of who you’re gonna believe—Ayn Rand or your own lying eyes"
November 5, 2013, 11:19 am 17 Comments
Free-Floating Inflation Hysteria
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It’s not often that you see an economic theory fail so utterly and completely. Yet that theory’s grip on the GOP has only strengthened as its failure becomes ever more undeniable.
Incidentally, small nerdy note. Some people argue that the concept of the monetary base has lost its relevance now that the Fed pays (trivial) interest on reserves. I disagree. Reserves and currency are fungible: banks can turn one into the other at will. But the total of reserves and currency is fixed by the Fed — nobody else can create either. That, as I see it, makes them a relevant aggregate — and anyone who believes that all those reserves are sitting idle because of that 25 basis point reward is (a) silly (b) ignorant of Japan’s experience, where the BOJ sharply increased the monetary base without paying interest on reserves, and what happened looked exactly like our own later experience.
Back to the evidence versus the orthodoxy. I can, in a way, understand refusing to believe in global warming — that’s a noisy process, with lots of local variation, and the overall measures are devised by pointy-headed intellectuals who probably vote Democratic. I can even more easily understand refusing to believe in evolution. But the failure of predicted inflation to materialize is happening in real time, right in front of our eyes; people who kept believing in inflation just around the corner lost a lot of money. Yet the denial remains total.
I guess it’s a matter of who you’re gonna believe — Ayn Rand or your own lying eyes.
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more (with graphs):
http://krugman.blogs.nytimes.com/2013/11/05/free-floating-inflation-hysteria/?_r=1&